Energy & Natural Resources Report
Achieving anything close to net-zero emissions by 2050 represents a civilization-wide transformation of the energy system and a generational opportunity for many energy and natural resource companies. It will require millions of new workers to change over tens of millions of pieces of machinery and equipment across both the energy and raw materials systems, and to develop hundreds of mines and supply chains for raw materials. It will also require access to millions of acres of land for renewables; energy transmission, distribution, and storage; and other necessities. Existing low-carbon technologies will need to be deployed much faster. Future technologies will need to move rapidly along the development and deployment curve.
In short, all elements of the new, low-carbon energy system and many continuing elements of today’s energy system will need to scale up—and fast.
Energy and natural resource executives stand ready to get to work, but they face a number of barriers to scaling their efforts, our annual survey of 600-plus industry leaders found. Many elements are involved in scaling up new energy solutions, including making the math work and ensuring the new systems are resilient in a changing climate. But once those elements are in place, there’s still the more practical challenge of getting projects done.
Our 2023 survey found executives aren’t as concerned about their companies’ internal will to scale up low-carbon businesses; relatively few see cultural resistance or lack of leadership support and ambition as significant roadblocks. Executives are more worried about whether they’ll be able to scale up low-carbon businesses, as they face barriers related to customers, regulators, supply chains, and internal capabilities and experience (see Figure 1).
Many companies appear willing to scale up low-carbon businesses, but it’s unclear whether they’ll be able to do so
The specific barriers to scaling—and their solutions—are unique to each company, technology type, and project. Scaling a mature renewable energy solution like onshore wind will be different from scaling an early-stage one like second-generation biofuels. Scaling demand, such as for green hydrogen offtake, will be different from scaling supply (e.g., electrolyzer manufacturing capacity). Scaling something that is closer to the existing core business—such as reservoir carbon capture, utilization, and storage (CCUS) for an oil and gas company—is different from scaling something distant from the core business, such as an alternative-carbon-products business for an oil and gas firm. Many executives face several of these dilemmas within the same corporate P&L.
On one hand, the fact that each solution will vary is formidable, and, from a climate change perspective, frightening. On the other hand, breaking it down can help identify the most effective, tailored strategy. The emerging leaders are focusing on four common scaling challenges:
- Development—stage-gate-like maturation of a material piece of infrastructure or a supply chain
- Integration—piecing together disparate, existing building blocks across technology, capabilities, value chains, or market participants
- Venturing—scaling up early-stage growth opportunities outside the core business
- Invention—innovating and generating new ideas
Part of the art of scaling is to ensure that the right solutions are applied to the right challenge. For example, a traditional scaling approach that works for development projects could kill a venturing opportunity. Similarly, Agile innovation isn’t the answer to long-cycle infrastructure project development. This may sound intuitive, but in the rush to solve the scaling problem, many companies take the wrong path and stall progress. And because any given company will have a portfolio of energy transition priorities, it may need to execute across all four scaling challenges simultaneously. That becomes a real test of business capabilities.
Scaling challenge No. 1: Unlocking development
Parts of the energy and natural resource system that already exist at scale, with mature technologies, will need to ramp up significantly to meet growing demand. And the way in which they must ramp up is already familiar to the industry: development projects. However, the energy transition is putting fresh pressure on certain bottlenecks, such as developing critical minerals supply and processing capacity; expanding the rollout of mature renewable technologies for energy generation, transmission, and distribution; and expanding gas supply to either avoid coal in a developing economy or to meet growing demand for renewables and industrial feed in a developed economy.
Technological innovation remains important to scaling up development projects, but the key is reducing development time, both to reach the market and then to expand. Consider the daunting speed and scale of metals and minerals supply growth required by 2030 to achieve net-zero goals: Nickel and cobalt production need to double, while lithium must increase sevenfold. Bain’s upper-range supply forecasts anticipate significant shortfalls (see Figure 2).
Projected metal and mineral supplies in 2030 fall well short of meeting demand in a net-zero scenario
Many large capital projects, such as mines, processing plants, offshore wind projects, and power transmission and distribution infrastructure, require over 10 years to come to fruition. Now, as the energy transition demands a different pace and scale, that project lead time is running into bottlenecks in two critical areas: stakeholder alignment and workforce capacity.
Getting stakeholders on the same page can significantly shorten time to market. Permitting in particular is often a time-consuming step, usually due to a combination of process inefficiencies, increasingly complex trade-offs, and stakeholder engagement across climate objectives, environmental issues such as local biodiversity impact, and community considerations.
In some European countries, renewable projects’ permitting process can take up to 10 years, despite the EU’s legal maximum of 2 years for new projects. In response, the EU earlier this year mandated that member states designate areas in which they will significantly reduce wait times for renewable projects.
A deep, local understanding of the policy and community environment can ease alignment and cut development time by years. While there are costs associated with this level of stakeholder engagement, the benefits of shorter permitting time are quantifiable, often meaning these investments pay off rapidly.
Workforce capacity is also a rising barrier to resource and infrastructure development. Consider the speed at which power grids require buildouts. Historical transmission capacity in the US has grown about 1% per year for the past decade. However, to achieve the full potential of the US Inflation Reduction Act (IRA), that figure must double, and to stay on track for the end-of-century warming target of 1.5 degrees Celsius, annual transmission capacity growth will have to increase to between 5% and 6%. This buildout will require 80,000 new electricians annually between now and 2031, according to some estimates. Similarly, France is struggling to find enough nuclear specialists to achieve its ambition of getting six new nuclear reactors up and running by 2035, a cornerstone of the country’s net-zero plans.
No single company can address workforce capacity on its own. It requires collaboration across engineering, procurement, and construction firms; project owners; governments; universities; and trade groups. At the individual company level, leading firms deeply understand future talent needs and seek creative solutions to bring that talent into the fold.
While those external factors generally present the most acute challenges for companies, some are speeding up development projects through their own ways of working. Forward-looking energy companies with traditional approaches to major capital projects or mergers and acquisitions are starting to take a more dynamic and flexible approach to decision making, enabling faster launches. (Read more in the Bain Brief “Energy Transition: Delivering Capital Projects On Time and On Budget.”)
Scaling challenge No. 2: Unlocking integration
Overcoming some energy transition barriers requires new system capacity but not necessarily new ideas. Scaling success in this category is akin to a physical form of IT systems integration. Examples include digital tools that help optimize energy grid storage and dispatch, or better connecting supply and demand in industrial clusters. This is happening at a macro level, such as initiatives integrating consortia and supply chains to provide hydrogen to multi-industry business clusters, as well as at a smaller scale, such as utility companies building energy-as-a-service platforms for industrial and other enterprise customers.
Policymakers and governments are uniquely positioned to act as local catalysts for expanding capacity in burgeoning supply chains. That could be via direct funding, such as the approximately $7 billion commitment from the US Regional Clean Hydrogen Hubs program to establish 6 to 10 domestic hydrogen hubs, or the EU’s €1 billion investment in the region’s hydrogen industry. Meanwhile, some governments are taking a leadership role connecting companies, researchers, local authorities, and citizens to identify and carry out solutions. The Mission Innovation Hydrogen Valley Platform cofounded by the EU is one example.
However, finding the talent to lead integration solutions and stakeholders is often difficult. Rather than expertise in functional disciplines—from digital capabilities, electrical system design, and joint venture negotiations to niches like customers’ offtake and usage patterns or electrolyzer manufacturing—project leads who have significant “techno-commercial” hybrid skills to integrate all of these areas, or who are great at nurturing partnerships, will be more likely to succeed. But people with this skill set are few and far between. Energy and natural resource companies may have to recruit from engineering firms, technology companies, government, or other corners of the industry.
It doesn’t help that many parts of the energy and natural resource industry are struggling to find and keep talent anyway. Nearly 40% of executives in our 2023 industry survey said they’re having trouble finding digital and IT talent, about a third report difficulty finding the engineers they need, and a quarter are struggling to find frontline labor. This is forcing traditional energy companies to rethink how they hire, manage, and retain talented people. A large international energy company has worked to widen its talent pipeline and increase diversity by taking a skills-first approach. It reevaluated job descriptions to remove requirements that weren’t actually critical—for example, considering skills developed in other industries, recruiting at more schools, and considering a wider set of degree majors.
Scaling challenge No. 3: Unlocking venturing
A crucial piece of the energy transition will be scaling up promising subsectors of the energy system that are early stage but growing fast: Think green hydrogen use cases, second-generation biofuels, energy storage, CCUS, and broad energy-as-a service platforms. These subsectors will potentially achieve scale in the late 2020s or 2030s. They typically have a mix of technological, economic, policy, and commercial uncertainty reflective of their early stage. This next phase of scaling through the mid-2020s will likely determine the role that some of these solutions will have in the future energy mix. Success as an early scaler may make or break competitive advantage for the 2030s and beyond.
The playbook for growing a start-up applies here. The pace, test-and-learn cycles with customers, and partnerships all take on an entrepreneurial flavor. This scaling challenge is therefore more acute for incumbent participants in the energy system, whose honed growth muscles are different from what’s required by the competitive dynamics of these emergent profit pools.
Once again, regulatory incentives can catalyze scaling in some of these markets. Biofuels mandates across the globe are paving the way for market growth. Meanwhile, in the US, the IRA’s tax credits have triggered investment growth in green hydrogen production by making it instantly cost competitive with gray, and a Department of Energy loan guarantee program supported the commissioning of the world’s largest hydrogen storage facility.
Nevertheless, the scaling barriers for venturing tend to be more internal than the other challenges. Commercial excellence will be essential and may require developing new muscles. Finding pockets of customers willing to form partnerships is critical to ensure demand offtake and a strong market position. Furthermore, leading companies’ sales teams are adept at understanding customer needs, creating risk-sharing arrangements across multiple parties, product testing and learning, collaborative solution-engineering, and account management.
Attracting outside talent is often a key to success. Leading companies don’t hesitate to rethink their recruitment strategy and value proposition for new hires. Ways of working may also need to change. Engine 2 businesses often rely on a strong operating model that allows for fast testing and learning cycles and a bias toward partnerships.
Scaling challenge No. 4: Unlocking invention
Some energy transition solutions are so early in development they’ll still be novel and fledgling in the 2030s, and they may never come to fruition. This includes technologies at various stages of R&D or early commercial testing, such as direct air capture, fusion, and concentrated thermal storage. Call them “known unknowns.” Other technologies are so raw and uncertain they’re basically “unknown unknowns” at this stage.
The work of scaling up these innovations is best tackled in the world of R&D, labs, and very-early-stage start-ups. Governments play an important role here, but so do incumbent energy and natural resource companies. According to Bain research, 125 of the top ENR companies by market capitalization in each sector spent at least $25 billion on R&D in 2022, more than half of the amount governments worldwide invested in energy technology R&D that year.
Asking the right questions
In the short term, companies that wish to lead the energy transition must lead in scaling up the required infrastructure and solutions. As executives develop their scaling strategy, a few simple questions can help them bring the right solution to the right problem:
- What scaling challenges apply to our company’s energy transition opportunities?
- Given that, what are our true bottlenecks, and what will it take to unlock them? What’s that worth to us?
- Will our current capabilities suffice to overcome our scaling challenges, or do we need to build new ones or form partnerships to fill gaps?
- What role could policy play in catalyzing our scaling, and what role can we play in catalyzing policy?